Subprime Losses May Reach $400 Billion, Analysts Say

Losses from the falling value of subprime mortgage assets may reach $300 billion to $400 billion worldwide, Deutsche Bank AG analysts said.

Wall Street's largest banks and brokers will be forced to write down as much as $130 billion because of the slump in subprime-related debt, according to a report today by Mike Mayo, a New York-based analyst. The rest of the losses will come from smaller banks and investors in mortgage-related securities.

Citigroup Inc., Merrill Lynch & Co. and Morgan Stanley led more than $40 billion of writedowns of assets as record U.S. foreclosures plundered asset prices. About $1.2 trillion of the $10 trillion of outstanding U.S. home loans are considered to be subprime, Mayo said in the note.

``We're not out of the woods yet,'' said Mondher Bettaieb- Loriot, who helps manage the equivalent of about $58 billion at Swisscanto Asset Management in Zurich. ``There are more losses to be taken and there's more negative news to come. At some point it will be a buying opportunity but we're not there yet.''

Deutsche Bank expects 30 percent to 40 percent of subprime debt to default. Losses on loans to people with poor credit histories may be as much as half the sum lent, Mayo wrote. The forecasts on total writedowns are based on ``seat-of-the-pants'' estimates using losses announced by the biggest securities firms, he said.

Estimates Grow

Banks and brokers may have to write off $60 billion to $70 billion this year, Mayo wrote. The estimate is based on known charges of $43 billion and expected additional losses of $25 billion. The report didn't include writedowns at Frankfurt-based Deutsche Bank, which were 2.16 billion euros ($3.15 billion) in the third quarter.

Loss rates on about $200 billion of securities based on derivatives linked to subprime debt will run to as high as 80 percent, Mayo wrote.

Estimates of losses have soared this year as defaults and foreclosures increased.

Total writedowns from subprime slump may be as much as $250 billion over the next five years, Lehman Brothers Holdings Inc. analysts said last week. Credit Suisse Group in Zurich estimated in July the total would be as much as $52 billion. Pacific Investment Management Co. in Newport Beach, California, in April put the fallout at $75 billion.
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